A broker learns confidentially from a client that his company is the subject of an informal inquiry by the Securities and Exchange Commission. The client asks the broker to keep the information private.
Should the broker tell the company’s D&O carrier about the SEC inquiry?
Michael Cavallaro, of ARC Excess and Surplus, challenged panelists at the Professional Liability Underwriting Society’s 2005 Directors & Officers Symposium with the hypothetical.
The unanimous opinion at PLUS: yes.
Panelists concluded that a broker has a legal and ethical responsibility to tell the carrier, even if doing so could bring later legal problems upon the broker from an upset client.
Kevin M. LaCroix, president, Genesis Professional Liability Managers, was among the panelists who said a broker couldn’t withhold material information from a carrier. “The answer is yes. A broker must tell,” LaCroix insisted. “The question of whether the information should have been disclosed comes later. The risk is now.”
Jeffrey R. Lattman, Beecher Carlson, concurred, adding that the broker might first try to convince the client to tell the underwriter but, in the end, the carrier must be told.
John Rafferty of The Hartford agreed, adding that the fear that the underwriter might be scared away could be overstated since SEC inquiries are rather common now.
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